United States Dollar Index2018-09-18T09:42:29+00:00

A key contributing factor to material price changes on imported goods is the currency exchange rate. A weaker index increases cost pressure for imported goods and materials.

The DXY measures performance of the US$ against six major rivals (the EUR, JPY, GBP, CAD, CHF and SEK). The US$ Index (DXY) rebounded in the second quarter, reaching 95.16. The USD lost more than 5% in the first quarter but has bounced back as a result of several issues. Conflicting news on domestic economic and political fronts kept the US$ within a banded range. The job market grew by 213,000 jobs in June, while wage growth reached 2.7% year-over-year. Federal Reserve Chairman Jerome Powell said the central bank will continue to gradually raise interest rates “for now’’ to keep inflation near target amid a strong U.S. labor market. The DXY reached a 28-month low in January, falling to 88.79. Growing fiscal concerns and evidence of an economic “regime change” in the markets has emerged, and the US$ may still have weakness ahead. There appears to be a disconnect between the US Dollar, US Treasury yields, and US stocks, and more generally, between the US Dollar and Fed funds expectations. The National Bureau of Economic Research says that regime change is “the tendency of financial markets to often change their behavior abruptly and the phenomenon that the new behavior of financial variables often persists for several periods after such a change.” In the case of the diving dollar, it’s rather apparent that behavior has changed abruptly since the passage of the tax reform bill at the end of 2017. The recent strengthening of the US dollar is unlikely to end in the near term. Widening growth and interest-rate differentials (in favor of the dollar) are the keys to this strength. Two developments have led IHS Markit to expect the greenback to appreciate more in the coming months and to stay strong through late 2019 or early 2020. First is the easing of monetary conditions in China and the expected postponement of any rate hikes by the European Central Bank (ECB). Secondly, rising trade tensions have boosted the safe-haven status of the dollar.


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